In Business This Week
Edited by Monica Roman
HEADLINER
Michael Eisner: O.K., Let's See Some Magic
Michael Eisner is hanging on. The Walt Disney (DIS
) chairman, under fire from shareholders and some board members, won unanimous support on Sept. 24 for a strategy to kickstart earnings growth through new cost-cutting and better results at Disney's ABC, theme park, and consumer-product units.
Eisner also faced down his harshest critic, board member Stanley Gold, who was forced to share power with former Senator George Mitchell (D-Me.) as co-chair of an enlarged governance committee. Eisner is hardly out of the woods, however: Under pressure to create a more independent board, Disney plans to cut to 12 its 16-person board, and maybe name a "lead director" to speak for shareholders, says Disney governance counsel Ira Millstein. And despite some early-season success, ratings are uncertain at ABC--a key barometer for Eisner's survival. But the Disney chief could have a blockbuster deal: Talks are heating up to merge ABC News with AOL Time Warner's CNN, which could cut more than $100 million a year in combined costs.
By Ronald Grover
Green Light for a Cancer Fighter
Astrazeneca (AZN
) and cancer drug developers in general, got some good news on Sept. 24 when an advisory panel for the Food & Drug Administration recommended approval of Astra's Iressa for very sick lung cancer patients. Iressa is the first of a novel class of targeted cancer therapies to make it this far with the FDA, and the news delighted investors, given that clinical trials have had mixed results. The FDA likely won't vote on the drug before January and could still ask for more tests, but it usually follows panel recommendations.
Those Wallets Really Are Thinner
The recession didn't seem so mild anymore after the U.S. Census Bureau announced that average household incomes plunged by an inflation-adjusted 2.2% last year. It was the first significant decline since the last downturn in the early 1990s, knocking families down to a median of $42,228, about where they were in 1998. The national poverty rate jumped for the first time in a decade, to 11.7%, from 11.3% in 2000. Poverty rates increased more for whites than for blacks, although the income decline hit hardest among blacks, families headed by women, and the foreign-born. Every region of the country saw a falloff except the Northeast, where household incomes grew by an average of 1.7%.
Energy Traders Are Getting Zapped
Energy trading companies have suffered another string of legal setbacks. On Sept. 23, a judge at the Federal Energy Regulatory Commission ruled that El Paso Corp. (EPG
) had manipulated prices of natural gas in California during the state's energy crisis. The company maintains its innocence. Separately, Dynegy agreed to pay a $3 million fine to settle Securities & Exchange Commission charges that it misled investors with fictitious trades and an off-balance-sheet financing vehicle. In a sign that more bad news may come, California's Attorney General asked a federal court to reverse a ruling by federal regulators that wouldn't have allowed the state to collect more than $2 billion it claims it was overcharged by energy companies during the crisis.
Vivendi to Diller: No Deal
Saying "We are an entertainment company," Vivendi Universal (V
) Chairman and CEO Jean-René Fourtou told investors the embattled French company won't sell its U.S.-based studio, music, and theme park business. Fourtou had been in tense discussions over a possible sale of the studio to USA Interactive (USAI
) Chairman Barry Diller, whose company owns 5.4% of the film unit and who could block a sale. Instead, Fourtou says the company will shed $12 billion of other assets, including its publishing, energy, and Internet operations and its telephone interests in Poland, Hungary, and Kenya. Still unclear is what Vivendi will do with its minority stakes in its water and sewage business and its Cegetel phone service.
A Duplicate That Xerox Didn't Want
There's more bad ink for Xerox. On Sept. 23, the Stamford (Conn.)-based copier maker revealed a new probe of its accounting. This time, the U.S. attorney's office is examining the company. Xerox says the investigation focuses on the same issues that led to a $10 million SEC fine in April and the restatement of $6.4 million in revenue. At that time, the SEC accused the company of fraudulently inflating earnings to meet Wall Street's expectations by accelerating revenue from leasing contracts, improperly drawing from reserves, and other maneuvers. News of the latest probe pushed Xerox shares down 16% over two days to $5.60 per share.
Et Cetera...
-- Three Homestore.com (HOMS
) executives have agreed to plead guilty to securities fraud.
-- Fleming is selling its struggling retail division to focus on its wholesale business.
-- A judge said insurers are liable for only one attack on the World TradeCenter, not two.
CLOSING BELL
Traveling South
Cendant (CD
) shares fell 13.2% on Sept. 25, to 11.25, after the travel and real estate franchising giant took a $175 million aftertax charge. Thanks to low interest rates, consumers are refinancing mortgages sooner than expected, cutting Cendant's servicing fees. The write-down will cause Cendant to miss third-quarter earnings estimates.
CLOSING BELL
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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